Mumbai: American fund houses have launched five more India-specific exchange-traded funds (ETFs) to tap the growth potential of Asia’s third-largest economy that defied the global recession to post an impressive growth rate of 6.7% last financial year.
These funds are BGI S&P India Nifty 50, Direxion India Bull 3x Shares, Direxion India Bear 3x Shares, SPDR S&P India and WisdomTree India Total Dividend. The fund houses have filed their papers with the Securities Exchange Commission (SEC), said a person familiar with the matter, requesting anonymity.
ETFs are open-ended funds that are designed to track specific indices and trade just like any other stock. They are priced continuously and can be acquired by placing an order with a stock broker during trading hours.
Direxion Shares and Direxion Funds, managed by Rafferty Asset Management, offer leveraged index funds that buy more shares than you can with cash, ETFs and alternative-class fund products for investment advisors and sophisticated investors who seek to effectively manage risk and return in both bull and bear markets.
SPDR ETF, managed by the Boston-based SSgA Funds Management, are index funds that track the S&P 500 Index. Barclays Global Investors or BGI has filed papers for a new ETF linked to the S&P India Nifty Index.
Currently, there are just two India ETFs, from PowerShares and WisdomTree. However, many other providers are looking to capitalise on the country’s growth. As on July 30, WisdomTree India Earnings (EPI) was up 63.7% year-to-date, while PowerShares India (PIN) was up 52.7% year-to-date.
The two India ETFs have more than $560 million in assets. As one of the few economies that grew in a year that saw most of the world in recession, India has a growing acceptance among global investors, said Ashu Suyash, India head of Fidelity International.
“A possible reason for the surge in ETFs investing in India is that risk appetite has returned sufficiently for investors to look at emerging markets again... As allocations grow, investors will begin to look for the alpha and follow a more actively-managed investment strategy,” she said.
California-based ETF expert Tom Lydon said investors increasingly recognise that ETFs make it easier to access markets that have certain restrictions (such as limits on foreign investment) or liquidity issues.
ETFs have become big investors in India, basically because the US retail investor has accepted India as part of his global equity portfolio, said Samir Arora of the Singapore-based Helios Capital Management. “That money cannot be easily raised by other intermediaries,” he said.
Over 25% of secondary market inflows were through this route in recent months, according to Credit Suisse. “ETFs are perhaps securitising emerging markets like India in the current global liquidity wave, the way previous liquidity waves saw securitisation of internet or developed world real estate,” said Nilesh Jasani and Arya Sen of Credit Suisse.
While there will be occasional outflow cycles in coming years, the overall influence wielded by ETFs is expected to grow larger. FII buying in India from April 1, 2009 is close to $9 billion.
A recent study by Novarica, a research and advisory firm serving insurers and wealth management companies, says globally the number of ETFs will shoot up from 728 in 2008 to 2,618 by 2015, while ETF assets will increase from $500 billion to $1.15 trillion.
